Q&A: Kobo Makes Play for Asian Readers

Kobo Inc., the company behind the e-reader and e-book app, is expanding its rivalry with Amazon.com into India and other Asian markets. The firm, majority owned by Tokyo-based e-commerce company Rakuten Inc., is making its foray into India months after Amazon.com unveiled its Kindle in the South Asian nation.

Kobo’s other competitors include Barnes & Noble Inc’s. Nook e-reader, as well as tablet computers and smartphones with large screens that allow people to read books in electronic form. The Kobo app runs on iPhones and iPads, Android-powered devices, Windows-based gadgets as well as BlackBerry Ltd.’s smartphones.

Kobo is selling four of its digital readers in India at prices from 6999 rupees ($110)for the basic six-inch device to 13,999 rupees for a high-definition 6.8-inch model.

Reflecting growing competition in the market, research firm Gartner predicts e-reader sales to peak at 27.1 million units in 2013 before declining to 21.1 million units in 2016 due to aggressive price competition from media tablets. Kobo’s executive vice president and general manager for devices, Wayne White, spoke with The Wall Street Journal on the company’s strategy.

Edited excerpts:

The Wall Street Journal: Give us an update on Kobo’s business and how many users you have now.

Mr. Wayne White: We have launched in 15 countries. We are number one, or number two in 10 of those 15 countries. India will be our 16th country.

[In terms of users] I will give you aggregate numbers. Globally we have about 16 million users and that is growing considerably.

We have grown at a spectacular pace. From that standpoint, almost by any measure we would have to define that our strategy has been extremely successful. Again creating a global, scalable e-book platform that we localize; partnering with booksellers who are able to identify and target the best book-loving consumers in every single country. We are offering devices and apps which optimize the readers but don’t compromise on anything else, and an app that works on a smartphone better than anyone else’s app.

WSJ: How will Kobo compete in markets where there are already powerful incumbents in this category including Amazon’s Kindle, and other tablet computers?

Mr. White: We compete with Amazon in many markets around the world. And we have proven that we have the ability to succeed.

Our entire model is based around partners — partner with the publishers, and partner with the bookseller. We only do digital reading, we don’t sell physical books. We are not a competitor to the bookseller so they embrace us. We also partner with consumer electronics retailers; we are not trying to steal their customers as some of the other competitors are trying to do.

We believe in putting together the best devices, the best content, partnering and collaborating with publishers, and partnering and collaborating with booksellers who serve passionate readers. We believe that is a winning combination too and we have proven around the world time and time again that successfully we have been able to compete against Amazon and others.

We believe over time more than half of all digital reading will actually occur on tablet as opposed to a digital reader. Here is how we attack the market: One, we produce our own multimedia tablet which is as competitive as anyone’s tablet in the market today from a performance standpoint, from a specifications standpoint. The difference is we have placed some features and some benefits that make it very unique and attractive for a reader. But it doesn’t compromise anything else in terms of its functionality.

The second thing is since we believe readership has the choice of digital access to read we produce an app that works on iOS, works on Android and it’s free and any consumer can download that to anyone else’s tablet that they so choose to use.

WSJ: How does Kobo want to differentiate itself from other tablets and readers?

Mr. White: One of the things that we believe in is about being open. Today if you buy a physical book, that’s your physical book that you keep with you, you can read that anytime you want to. So in Kobo if you buy a digital book, it is your book and we don’t have a closed ecosystem.

We allow you to take that book and read it on another device or read it on another app. Most of our competitors — not all, but at least the major ones in the market — have a closed ecosystem, so you buy a book from them, you can only read it on their device or on their app.

We find our consumers appreciate the fact that we are not trying to lock them into our system, we allow them to move, and we do allow them to bring content purchased from other sources, and they can side load it and use it on our reader or in our app.

We feel the size of our catalogue is very attractive…we just don’t bring local content, we bring in a global catalogue…recognizing the diversity that exists in India, people who want to read content from all over the world and local content as well.

We also bring a very well-developed self-publishing operation, where we really start to develop and work with the local authors to create local unique content and things that would never ever get published, it can today get published. We offer them a lot of control. Our entire model is around partnership and collaboration. So we give them a larger share than most in terms of the profit, we allow them to accept their own prices, and control their things. We also provide lots of services that help them become business people and become more profitable, and really create the richness of the content that they create.

WSJ: How big is your catalogue?

Mr. White: We have almost four million books in our catalogue, which would make our catalogue as competitive as anyone’s catalogue in the world.

WSJ: Where are you looking at next in terms of expansion, especially in India and Asia where there are many languages?

Mr. White: We are partnering with publishers, because the publishers need to create the content and make it digital.

We are going to expand and get the 30% of the marketplace. There are number of things we really need to do, including servicing most if not all of the languages that content is created.

WSJ: What are Kobo’s major sources of revenue?

Mr. White: We make money on books…Kobo is a content business.

We create devices because they create a very optimized experience and we believe that we lead the market in that sense. But our money and our value is our ecosystem of our book catalogue and our relationship with our publishers and our ability to create a global e-book catalogue.

From a pricing standpoint we always are competitive; we compete with everyone around the world.

Mr. White: There is a broader global vision around what Rakuten is attempting to do. Some point in the future some additional services might be layered on top. That is a possibility.

WSJ: What is the rationale behind launching Kobo in India?

Mr. White: The reason why Kobo is in India is because the transformation in digital reading has just started to occur here in this marketplace and we feel that this is the right time. We have been working with some of the local partners for over a year now.

Our strategy (for India) will evolve over time to make sure that we can really succeed in those 70-odd cities in the country, which really make a lot of the sales. We will make sure we serve those areas.

WSJ: Is India still a nascent market for digital readers?

Mr. White: You know the population of India and we also believe that digital reading is early on. We actually have pretty high aspirations to acquire a large number of customers here.

We think right now the market is less than one million users. But what we have seen from the adoption curve around the world is that has started small and then it grows exponentially very quickly. In a market like the U.S. where it is 25%-30%, U.K. it is 20%, Germany it is 5%-6% — all those markets are moving in the same direction. So we expect while the market will be small today…the growth rate will be quite significant and move very quickly. We believe that within five years that 30% of books will be consumed digitally. The base today is very small, 1%.

We are excited to be here in India. We think the market is about to really explode in terms of growth and we are really excited to be here early on and help that market in that transition to new exciting technologies.

WSJ: What are the challenges that Kobo foresees in India?

Mr. White: I think every market has some set of unique challenges. And I am not sure that India has any challenges that are any more complicated than challenges in other markets. Obviously, the language one….multiple languages, that is somewhat interesting.

The nature of retail in India is such that structured retail is actually a very small percentage of the total but the smaller shops are a very large percentage. There are very few places in the world where that is the case. India, China, and one or two other places around the world…but it is just the way it is and you figure it out.

WSJ: How do you plan to compete in a price-sensitive Indian market?

Mr. White: Being price-competitive is always going to be stable state. We know that we have to do that. And Indians aren’t the only ones that are price-sensitive. I dare to say that everybody across the world is price-sensitive and we know that you just have to be competitive on pricing in the digital space.